Financial Terrorism? - Cramer's Stop Trading! (9/18/08) 20 comments
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Recap of Jim Cramer's comments on Stop Trading! Thursday September 18.
Financial Terrorism? - Goldman Sachs (GS), Morgan Stanley (MS), Wells Fargo (WFC), U.S. Bancorp (USB)
The damage being done to stocks through short selling, where Wall Street’s most legendary institutions are losing value at alarming rates, could be the work of financial terrorism. Cramer did say that, given the fact that the U.S. is in a “financial nationally emergency,” the “financial terrorism thing, to me, has to be put on the table because the regular short-sellers are not doing this." Cramer’s been talking to the short sellers he knows, and that’s the theory they’ve been putting forward. It's not his idea, he said, but people are saying that financial terrorism could be responsible for the decline in stocks such as Goldman Sachs and Morgan Stanley, which Cramer says should be doing fine otherwise. "Goldman has no home equity loans and car loans. Goldman does not have exposure to the parts of the economy that are bad," he said. "No one's listening to me that I think Goldman is fine." In the U.S., though, the Securities and Exchange Commission should bring back the uptick rule, Cramer said. That rule requires a stock to tick up in price before it can be sold short. Stocks such as Wells Fargo and U.S. Bancorp are doing fine. "We have so much love now for the deposit banks," Cramer said. "Wells Fargo could do whatever it wants." As for a ban on short-selling, Cramer was adamant that that was not the right move unless the threat of financial terrorism is real. "To ban short-selling is wrong," he said. "You can't ban the stuff. Just bring back the old rules. They worked for a long time."
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This article has 20 comments:
Make sure the investigators are reminded for months to come -- somebody almost wrecked America by "shorting out" its financial system -- a financial Pearl Harbor and 9/11 combined when one considers the wreckage of the last few weeks.
"They" should pay -- big time, even if it is a country. Let's see -- whose markets were closed today due to a "financial crisis?" Wonder which financial crisis?
While you're at it, make sure you throw in a call for the LSE and UK govt. to investigate its denial of service attack the Monday after the FNM and FRE takeover.
This has been seen n times and it is why the central bank and lender of last resort adages exist. Lend *freely* - not grudgingly with an eyedropper. Never starve a panic - not, play populist class warfare politics trying to avoid journalist headlines against bailouts.
The regulators screwed up over Lehman and should be men enough to admit it. Being against bailouts for 48 hours cost about $4 trillion and required a bailout 10 to 100 times as large.
Technocrats have to be allowed to do their jobs, and know-nothing populists and ideologues, in both parties, need to shut up and sit down. And technocrats have to be given carte blanche to rout short speculators, whatever it takes, because nothing else stops them.
What happened this week and last is transparent - the winnings of bets against Fannie and Freddie were instantly piled on Lehman and AIG and Merrill, and the winnings of the Lehman bets went straight on to AIG, and the winnings on those onto Morgan Stanley and Goldman - all, completely without regard to any differences in the performance or finances of any of them. Just a mechanical process - if a short bet wins, a bigger short bet exactly like it immediately results.
This only stops when they can and do lose as much as they had been winning. And no, you can't bring that about by sounding populist and high minded and fair and economical and stingy. You only get it to happen by being a bloodthirsty bastard who wants to murder them, and also to make a killing.
The Fed is staring at spreads between treasuries at 0 and corporates at 10%, and it has literally unlimited firepower to arb that spread. It knows if it arbs it hard enough it will close by half. It isn't arbing it, because it has some non-profit fastidious idea that it isn't allowed to interfer.
Screw that. Intervene. The shorts' balls are on the table. Make a trophy out of them.
Anybody think you can lose money lending at 10% with money you can create out of thin air that others are clamoring to hold at a yield of zero?
No for-profit institution with the Fed's resources and powers would have let it go on this long...
because by law [ the IRS wants their cut lol } 75 million baby boomers by law must begin to withdraw money from their 401K's , and every year therafter the number will accelerate. we will bottom by rosha shanna , and on yom kippur the next wave of the bull market begins
China - The Chinese also have a significant amount of cash, a government that wants to ensure Chinese world dominance, and the financial expertise to do it rather covertly. They could also then come in and scoop up companies on the cheap - but not the banking stocks they just hammered. They would likely buy the GEs, CATs, and Ingersol Rands of the world - companies that make stuff, so they could move operations, or just acquire the technologies and patents, and use it to advance their goal of economic supremacy. This is really what I would find most likely if it were "financial terrorism"
Actual terrorists? Well, maybe... they could be funded through friendly governments with windfall oil money (Iran) with no desire of later gains, or buying up companies, but just causing extreme havoc in the world system. I find this highly unlikely.
But anyhow, it's probably just a handful of hedge funds leveraged out 30 to 1.
Oh better idea to ensure stability...Lets close the stock exchanges...Let the fed buy and sell the markets...
America is really getting sick.
So Paulson finally get the shorts to cover like hell...But they'll a huge price to pay for that... I would short the fed if i could...due to its ballance sheets...Oh, no the treasury will bail it out...Who is going to bail out the Treasury...(in case there's still a treasure left)
welcome to communism . We get the government we deserve, citizenship is not a spectator sport!
It is a fair question, but it has an actual answer.
Back in the early days of the New Deal when modern financial regulation was in its infancy, the SEC was created and all that. The authority of the Federal government to engage in that sort of regulation was challenged in the courts by small government types on the right. The constitutional justification for the agency and regs was the interstate commerce clause. And to fit that justification basis, the regs were written so as to apply to financial entities that *communicated* with the public, that advertised, used the mail, etc.
Hedge funds are, legalistically speaking, simply financial operations that deliberately avoid falling into any of the categories that trigger the provisions of those legislative acts. They can't advertise, for example. If they did they'd have to comply with all the usual investor protections etc. They aren't unregulated because someone thought it'd be a bright idea to let them be, but because the regs were written to stay within an enumerate powers doctrine about what the Feds could do, and then they act to avoid the boundary lines those had to refer to.
Which we could change, of course. Just explaining why it is the way it is, historically speaking...
Is this mess engineered or is it benign neglect by the government,
or something more sinister?
Economic terrorism is not impossible, but improbable. Heraldo thinks its the Chinese; others the Russians. But given the tight complexity of the world market if one gets hurt we all feel the pain.
Time to really investigate this issue and put the guilty in prison with no exceptions.